Nokia Faces Steepest Job Cuts in 20 Years on Microsoft Deal

By Diana ben-Aaron -
Apr 12, 2011

Nokia Oyj (NOK1V) workers are bracing for
what may be the steepest job cuts in almost two decades as the
world’s largest maker of mobile phones prepares to start a
partnership with Microsoft Corp. (MSFT)

A reduction in research and development activities is set
to be announced by the end of the month, with as many as 6,000
jobs under threat, said Antti Rinne of Pro, Finland’s biggest
private-sector office-worker union. That would be equivalent to
38 percent of the Finnish company’s global devices R&D
workforce. Nokia declined to comment on the numbers.

Chief Executive Officer Stephen Elop said on Feb. 11 that
Nokia will adopt Microsoft’s Windows Phone 7 as its main
smartphone operating system over the next two years, a move
triggering “substantial reductions in employment.” As he
phases out Nokia’s homegrown Symbian and MeeGo systems, workers
haven’t been told who may hang onto their jobs.

“This doesn’t make for very efficient or creative working
conditions,” said Kalle Kiili, an engineer in Tampere, a
research site that employs 3,000 workers, and represents the YTN
union. “This waiting is expensive and we’ve already had a
reorganization of R&D in 2009 and another reorganization of
Symbian in the second half of 2010, just as the organization was
starting to work properly again.”

At 3 billion euros ($4.3 billion), Nokia’s 2010 research
budget for devices, which include products ranging from basic
handsets to smartphones that can edit documents and show movies,
is more than twice Apple Inc. (AAPL)’s entire $1.78 billion R&D budget.

Nokia today unveiled an updated version of the Symbian
smartphone software and two new smartphones that will run it.

The E6 business phone combines a Qwerty keyboard and a
touchscreen. The X7 entertainment phone has a large display to
play games and an 8-megapixel camera for taking pictures and
high-definition-quality videos. Both handsets will start
shipping in the second quarter, Nokia said.

Since Apple shipped its first iPhone in 2007, Nokia’s share
of smartphone sales by volume has shrunk 20 percentage points to
30.8 percent in the final quarter of 2010, according to
researcher Gartner Inc.

At the end of last year, Nokia employed 16,134 people in
R&D for devices and services, a company filing showed.

Cost Cuts

“The reductions are likely to come gradually, over the
next 12 months because they have some further development in the
pipeline for Symbian,” said Michael Schroeder, an analyst at
FIM Bank in Helsinki who has a “reduce” rating on the stock.
“The expectation is that after the transition period they would
have cut a third of their device R&D spending compared to what
it was in 2010, so that would mean 1 billion euros in total.”

Nokia has said the transition would extend into 2012. Under
Finnish laws, companies must start negotiations with unions when
they announce job-cut plans. Those talks typically last about
six weeks. Nokia is scheduled to release earnings April 21 and
hold its annual shareholder meeting May 3.

Nokia has about 21,000 workers in Finland, or 16 percent of
its global headcount including the networks venture with Siemens
AG (SIE), according to filings. The figure also includes a smartphone
factory in Salo with about 2,000 employees.

In November 2009, Nokia Siemens announced plans to
eliminate 5,760 jobs. The venture cut as much as 15 percent of
60,000 positions when it was created in 2007.

Revamp

In 2008, Nokia closed a handset plant in Bochum, Germany,
slashing about 2,300 jobs. Nokia announced reductions of 1,700
jobs in sales, marketing and management in March 2009 as
consumer demand fell in the global recession.

Nokia’s headcount declined by 31 percent between 1990 and
1993, according to annual reports, as the company shed units
making rubber products and computers. The handsets organization
has more than doubled in size since 1999, to 58,642 people at
the end of last year.

A month after taking over as CEO in September 2010, Elop
announced a plan to cut 1,800 jobs in areas including Symbian
smartphones.

“We have said we are planning to say more about the impact
on our personnel in the last week of April,” said Nokia
spokeswoman Paeivyt Tallqvist, adding that any announcement
won’t be restricted to Finland and the plans include starting
negotiations with employee representatives. “We have not given
any figures or estimates.”

Share Price Decline

Nokia has slid 24 percent since Feb. 11 amid investor
skepticism that the alliance with Microsoft will result in
products capable of regaining share from Apple and Google. The
Espoo-based company’s market value was surpassed last week by
HTC Corp. (2498), Asia’s second-largest maker of smartphones. Standard
& Poor’s and Moody’s Investors Service have both cut Nokia’s
debt ratings since the Microsoft agreement.

“People could be disappointed if they announce something
and don’t indicate how they will go forward,” said FIM’s
Schroeder. “The key issue from an investor viewpoint is not how
much they will cut now, but the long-term outlook for Nokia
smartphones overall.”

A model could be what happened in Jyvaskyla when Nokia and
the government were able to create 450 jobs to replace 320 lost
when the phonemaker closed an R&D site, said Anssi Paasivirta, a
director at the Ministry of Employment. Paasivirta has worked on
more than 20 restructurings including the shuttering of paper
mills, the closing of Finnish production at Nokia’s contract
manufacturer Perlos Oyj in 2007 and job cuts at the Salo
factory.

Longer-Term Projects

Nokia shut an R&D site in Jyvaskyla in 2009, leaving R&D
groups in Salo near the factory as well as Tampere, Oulu and the
capital area which includes Helsinki and Espoo.

Other devices R&D locations include Beijing, Bangalore,
Copenhagen, and San Diego, as well as Ulm, Germany, and London
and Farnborough in the U.K. Nokia also maintains a network of 13
research centers working on longer-term projects such as sensor
technology and 3-D interaction.

Finland’s Ministry of Employment has a working group that
meets weekly with Nokia and others to review options for helping
people through the transition, said Paasivirta. Asked about the
reorganization, Finance Minister Jyrki Katainen told Bloomberg
News yesterday that he expects Nokia to do its best to create
new opportunities for those who will lose their jobs.

“Some people who had other opportunities have left,
particularly in MeeGo, but most are still waiting for whatever’s
going to happen,” said Kiili, the Nokia engineer. “The fear is
worse than it was earlier because it clearly involves people’s
jobs and we haven’t had such extensive cuts before.”